MoviePass, whose subscribers pay a monthly fee to see an unlimited number of movies in most theaters in America, appears to be circling the drain. On Friday, the service temporarily shut down after the company ran out of cash amid a flood of Mission: Impossible – Fallout ticket sales. Over the next few days, MoviePass’s parent company, the data analytics firm Helios & Matheson, announced further changes to the program. Blockbuster films, like the forthcoming Christopher Robin and The Meg, are no longer included in the pass; at the same time, the monthly fee increased from $9.95 to $14.95. Helios & Matheson’s stock, which was at nearly $60 a share a month ago, crashed amid the bad news. It closed Wednesday at $0.23.
MoviePass’ demise seemed inevitable, if only because of simple math. The company paid theaters full price for the tickets, but subscribers only paid $9.95 a month, so anyone who used MoviePass even once a month was costing it money. It doesn’t take an advanced degree in economics to realize that that’s not a sustainable model. Moreover, many subscribers suspected that such a good thing couldn’t last, and acted accordingly. The New Yorker’s Amanda Petrusich compared it to Supermarket Sweep. There was certainly a game show quality to it, as a couple million users tried to see how quickly they could spend hundreds of million of venture capitalist cash.
But MoviePass is not an anomaly. Many of the largest tech companies employ a similar strategy of burning cash in pursuit of rapid growth that could, theoretically, eventually be turned into profit. As the New York Times’s Kevin Roose argued earlier this year, only somewhat hyperbolically, the “entire economy is MoviePass now.” Looking at tech peers in Silicon Valley (particularly Netflix, to which it was inevitably compared) it should be no surprise that MoviePass settled on a simple formula: Take money from venture capitalists, provide a below-market price for a popular service, and profit.
While its endgame certainly wasn’t favorable for movie studios or theaters, MoviePass’s ambitions could hardly be compared to those of companies like Amazon and Uber, which are set on decimating commerce and transportation respectively. In fact, it was this lack of ruthlessness, rather than its unsustainable business plan, that ultimately did MoviePass in.
MoviePass’s plan was straightforward and familiar. When Helios & Matheson acquired a majority stake in the company last August, it dropped its price point—which had once been as high as $50 a month—to $9.95 in the hopes of scaling rapidly, which is exactly what happened. In August of 2017, MoviePass had 20,000 subscribers. By March of 2018, it had two million—and was projecting five million by the end of year.
Scale was the key to profitability. MoviePass could not continue paying theaters full-price for tickets if it wanted to survive, so it hoped to grow large enough to be able to pressure chains like AMC to give them discounted prices—a fair bargain, they would argue, given the amount of business that MoviePass’ millions of subscribers were bringing to theaters across the country. At the same time, it would function as a kind of advertising platform for those looking for a night out, using its platform to advertise for restaurants that moviegoers could go to with their dates before or after the movies. Finally, it would invest in movies themselves, then use its platform to push those movies on its subscribers.
None of these plans worked out.
Its subscription plan was immediately seen as a threat by theater chains, who worked to undercut it. In January, MoviePass feuded with the movie theater chain AMC, which was concerned that the service’s low price would devalue tickets, and pulled its service from ten AMC theaters in a failed attempt at extracting concessions. AMC later started its own subscription service, priced at a more sustainable $19.99 a month. It has acquired 175,000 subscribers in only five weeks.
MoviePass’s plan to monetize its users’ data proved controversial after its CEO Mitch Lowe bragged, “We know all about you. We know your home address, of course; we know the makeup of that household, the kids, the age groups, the income. We watch how you drive from home to the movies. We watch where you go afterward.” The backlash, while deserved, obscured an important fact: Many large companies, particularly credit card companies, have this kind of data already, so it’s not as valuable as Lowe seemed to think.
MoviePass’s investments in movies were similarly disastrous. The John Travolta vehicle Gotti, which the company invested in and pushed on its platform, was a critical and financial disaster. The company investment in the film was sizable. Of Gotti’s $10 million budget, MoviePass provided an amount in the “low seven figures,” per an report in Deadline. MoviePass did claim that it drove 40 percent of the film’s ticket sales in its opening weekend—a figure which is not verifiable—but those ticket sales amounted to just over a million dollars.
Meanwhile, MoviePass’s core business—subsidizing trips to the movies—remained enormously popular, and coincided with a rebound in moviegoing. The 2018 box office is up nine percent over last year, driven in part by an especially strong crop of blockbusters, including two Marvel movies and new installments of Star Wars, Jurassic Park, and Mission: Impossible. (Some have speculated that MoviePass’s growing customer base played a role in the boom, but there’s little reliable data about what MoviePass’s effect on ticket sales has been. Studio Movie Grill, a small chain with a stake in the company, has claimed that it saw increases “when it comes to increasing frequency and off-peak visits.”)
MoviePass is being mocked, but it’s understandable why Helios & Matheson concluded that selling investors on massive potential (and massive future returns) was a better bet than selling them on a sensible subscription model that would slowly pay dividends over time. The model that it ultimately deployed, in which it raised hundreds of millions from investors and then “redistributed” that money to consumers in the hopes of quickly amassing market share, has been deployed again and again by companies, many of whom lost much more money over a much longer period than MoviePass did. Amazon went public in 1997 and only recently became reliably profitable. Netflix is profitable, but has a negative cash flow of $2.5 billion. (That number will jump to as high as $4 billion as it increases its production of original content.) Uber, meanwhile, lost $4.5 billion in 2017, its ninth year in business.
These companies can continue to sell investors on a future in which they are ever more powerful—where Netflix has all but replaced television, where Uber has all but replaced car ownership and public transportation, where Amazon has all but replaced the entire retail industry. MoviePass tried to make the case that it was this kind of company, but it struggled to articulate what its ambitions were beyond building a massive customer base. This lack of clarity—and the company’s habit of launching ambitious side projects, like movie production, seemingly at random—appears to have caused investors to balk. MoviePass was simply never given the kind of runway that companies like Netflix and Uber, let alone Amazon, were.
Helios & Matheson made just about every mistake a tech startup can make in a very short period of time, but ultimately MoviePass’s model wasn’t the problem. As AMC’s nascent service shows, monthly movie passes not only can work, but may well be the future of moviegoing. The problem is with the larger model of tech entrepreneurship, in which nothing less than world domination is considered a failure.